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Meaningful innovation

Alex Laskey at TED

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In a number of my workshops and presentations I’ve used the example of some research into the power of harnessing social norms to drive energy efficiency. And also how these same norms can have unexpected rebound effects. In preparation of a workshop I’m running in a few weeks’ time I came across Alex Laskey’s fantastic talk on the subject. Well worth a watch—he does a fantastic job of explaining how it all works and what they’ve found.

What will replace A Better Place?

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A Better Place battery swap station

I was disappointed to learn about the liquidation of electric car infrastructure provider A Better Place earlier today.

I really admired Shai Agassi’s vision for this business, and have highlighted it as a great example of both social innovation/shared value (business with a social/environmental benefit at its heart) and design thinking (replicating the convenience/experience of a service station for the electric vehicle age) in presentations and workshops that I’ve facilitated. Naysayers will no doubt latch on to this event as reasoning for a) why social innovation/shared value doesn’t work and/or b) why electric vehicles are not going to succeed (case in point).

They externalised and amortised one of the key drivers of higher costs of electric cars (commentary I’ve seen puts the battery at about 20–30% of the cost of the vehicle). The model also presented real business incentives to improve longevity and management of battery technology waste due to the side-effects of product service systems. Batteries could be more easily rolled out to customers over time as well, as new technology came to market without modification to the vehicle.

I also admired the multi-faceted nature of the business—which proposed not only technology for battery swapping, but also more general charging infrastructure. I saw an interview with Agassi where he described A Better Place not as a charging or battery company, but as an energy company. They saw the potential for electric cars playing a significant role in smart grid infrastructure—a vision much broader than just cars.

The article linked at the outset of this post doesn’t go into a lot of detail, other than to suggest public uptake of electric vehicles was slower than anticipated, and gaining automotive supplier support was a key barrier.

It’s perhaps ironic that a company set up to remove one of the key barriers to electric vehicle sales—the “range anxiety” issue—was unable to get sufficient support from automotive manufactures, who report lower-than-expected uptake of electric vehicles as a reason not to invest more. Seems like a classic chicken and egg conundrum, that A Better Place was looking to solve and externalise for the manufacturers. Given only one vehicle manufacturer—Nissan Renault—got behind the initiative, it does beg the question just how serious car companies are about really advancing this market. That said, even leader Tesla Motors hadn’t gotten behind the approach, as far as I know, and they certainly can’t be accused of not promoting/supporting an electric vehicle future. (I would be especially interested in Tesla’s comment/take on A Better Place’s closure.)

I suspect the biggest problem was simply trying to launch too early to support an immature industry. That is to say they were simply ahead of their time. Electric vehicle technology is in its relative infancy, and standards and technologies are evolving rapidly. I suspect it was difficult to get manufacturers to commit to a standard given the many different configurations and challenges related to A Better Place’s approach. Battery technology, in particular, is rapidly evolving.

And placement of batteries within a floor-pan is not as simple as finding a place for a petrol tank. For example, some manufacturers have layered them across the floor-pan. Others have placed them behind the seat. Others, still, have them placed in various locations across the vehicle to balance weight and driving dynamics.

I’ve not had a moment to review further commentary on the closure, so I’ll be interested to learn more in the coming weeks/months as more is written about A Better Place’s experience, as no doubt will happen. I’d love to read comment from those close to the project, with the benefit of a little distance in time, what lessons were learned.

I have said in the past I don’t think hydrogen fuel cells are coming any time soon (I see this as a bit of a red herring—a future that will perpetually “just around the corner” to give manufacturers and excuse for not backing alternatives). And while battery technology is improving at a rapid clip, it will be some time before charge times reduce to minutes, instead of hours. Short of a miracle breakthrough (which is a potential, but still not something we can “bank” on). Will charge time become a non-issue as range increases? I don’t think it will—certainly not in the public’s perception.

So something like A Better Place will be needed if electric vehicles are to achieve widespread up-take in a non-urban/fleet environment, even in the short term. Given A Better Place’s experience, I’m wondering what new venture/approach will step up to take its place?

Bike smart with Nau

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I’ve been a fan of Nau clothing since their launch and have watched closely as they went through closure, were bought out, and have started to rise again.

Nau make stylish active wear. It’s not hard to notice that more recently they have made cycling culture a focus. Their latest email newsletter is one example.

I think this approach is really smart. They have a clear niche they’re focusing on, but that niche has much wider-spread appeal to the urban fashion set. That is to say, there are many folks that aren’t part of cycling culture that still admire and appreciate the “hipsters on fixies” as part of their guide to style and fashion.

When thinking about social innovation and sustainable business (which Nau is—they follow the cradle-to-cradle principles of “waste = food”) this is very important. To not target only on the sustainability minded, but to find a strong niche that is aligned with those sustainability values. This is part of the advice from our case study on Haul—that it was the uniqueness of the product that was the (primary) selling point, not sustainability features.

In any case, I’m excited by Nau’s prospects and direction, and am even more excited by my recent discovery that they now ship internationally :) Just a matter of time before one of these ends up in my wardrobe…

Case study: GoGet CarShare

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This post is part of a series outlining my learnings from interviews with a number of small and medium businesses exploring how they have benefited from a shared value approach. These case studies support a paper I wrote exploring strategic CSR (PDF 1.3MB). This case study is based on an interview undertaken in 2012 by Allison Heller, who at the time of publishing is Social Strategy Advisor for the City of Sydney.

The distinctive orange side mirrors of GoGet CarShare cars are an increasingly familiar sight across Sydney’s urban neighbourhoods, along with those in Melbourne, Adelaide and Brisbane.

GoGet CarShare car.  Image: neeravbhatt @ Flickr http://www.flickr.com/photos/neeravbhatt/8653599067/

GoGet CarShare car. Image: neeravbhatt @ Flickr

Australians are notoriously wedded to their private vehicles. But attitudes to car ownership are shifting in inner city areas when good alternatives are available. A lack of private parking spaces in new developments, local government planning controls supporting reduction in private parking, and residents’ desire to not own a car are all driving this shift.

GoGet has both benefited from and actively supported this zeitgeist to establish and grow a highly successful car share business. The firm’s marketing is based on simple, common sense, rather than an overtly ‘green’ message. The appeal of the service is neatly captured in just a handful of paragraphs on the company’s website:

GoGet gives you all the benefits of a car—without the hassle and expense of owning one! As a member, you have access to a network of new cars parked locally which saves you time and money and lets you get more out of life…

GoGet is perfect for people who don’t need a car everyday or want to get rid of that second car. It’s also perfect for businesses or organisations that get the benefits of having a car fleet without the costs. [1]

GoGet CarShare is more convenient than car rental, cheaper than car ownership and a great way to help the environment. Just book any car online or over the phone, by the hour or by the day. Then, take a short walk to the car, unlock it using your smart card, jump in, drive and bring it back to the same spot when you’re done.

Each month you get an itemised invoice, much like a phone bill. What you don’t get are mechanical, insurance and registration costs, cleaning hassles and everything else that goes with owning a car. [2]

Census data for 2011 from City of Sydney, where the firm’s headquarters is based, shows a strong decline in household car ownership and declining figures for car-based journeys to work—a clear boon to GoGet’s business model. But it’s fair to say that GoGet co-founders Bruce Jeffreys and Nick Lowe were well ahead of the curve when established the company back in 2003.

Straight-talking Bruce, who hails from a marketing background, says the business model just made sense:

Aristotle talked about utility being from use, not from ownership. It’s about taking the surfboard out and gaining enjoyment value from surfing on the wave, not from owning and looking at the surfboard. It’s about being on the wave.

The strong demand for the firm’s product is growing exponentially, supported by property development trends and local government policies. Supporting City of Sydney Council’s Sustainable Sydney 2030 Strategy, for example, is a car sharing policy targeting uptake of car sharing to 10% of all households by 2016.

The firm had humble beginnings, grounded in the duo’s inner-western Sydney community ties. Starting with three cars in Newtown and 12 founding members, the business has grown organically to have 800 cars, 18,000 members and 22 employees in 2012. GoGet is now one of the largest car share companies in the world, according to Bruce, and the fastest growing in the English-speaking world.

This success is not only attributable to wider social and political trends, but to the firm’s common sense and ethical approach to business. In this sense, Bruce summarises GoGet’s brand differentiators as:

  • Local;
  • Authentic: for example “if we take a marketing photo of a person for a brochure, it’s a real person, not a model from an agency”—early advertisements featured Jeffreys and his sister, for example, and
  • Connected: internet/networked/engaged.

Starting small and growing organically has had advantages in developing GoGet’s market position. Bruce explains:

A large corporate is by nature global, superficial and disconnected. In terms of trust and values, these things are key. This is how we view our model, brand and success, from a brand differentiation point of view. It’s not rocket science.

It was a sustainable model from the start in relation to business finances. The business has grown organically without the need for external funding. We will continue to grow organically—in Sydney and Melbourne we are leading the market, and we’re interested in other Australian cities.

At the outset, the GoGet co-founders rooted their business decisions in market research. They saw the potential for car sharing through their community’s living patterns.

Our initial market research involved surveying 450 people in Newtown in one day, at the Newtown Festival. The survey was not about car sharing per se. We asked them about their transport patterns—Did they have a car they hardly used?

This was really important [to the foundation of the business]: the most important thing with any business is direct market research. You have to establish your first customers.

Now GoGet is going from strength to strength, Bruce provides a refreshingly straightforward take on the highlights so far.

There have been no real watershed moments. It’s about slogging away day by day. … The big highlight for me personally was the day that me and Nick [Lowe] didn’t have to be on call 24 hours [a day]—we could get a good night’s sleep. Also, putting in the place management team—one that we can trust, that’s delivering.

Like many small business owners, Bruce sees authenticity in relationships with suppliers is critical:

We look for straight-talking, ethical suppliers. Essentially, people we like dealing with.

Sustainability for GoGet is integral to our approach. It’s integral to how we do things; not an add-on. So if a supplier has sustainability as an add-on, it has no value for us. We are only interested in those that do it and get it. We’re just not interested in, for example, a supplier with a green standard as a mask.

The question is: do they fit? We need to discern that, for example, by looking at how a supplier approaches you. You want to have an honest and straightforward relationship with someone who can communicate well. So that when you need to have a discussion, for example, about whether something is too expensive, you’re not dealing with a defensive attitude.

He stresses that sustainability must be a fundamental value for a successful business today—but one that is inherent, beyond the promotional:

A business promoting itself as ‘sustainable’ is a bit like a business saying ‘I believe in world peace,’ when what they do is make pizzas.

It’s about embedding sustainability in what you do on a day-to-day basis, rather than a culture of window dressing. Resilience comes from aligning your values with what you do. And if you aren’t already doing it [i.e. sustainability practices] then what’s stopping you?

As for the concepts of shared value and collaborative consumption, Bruces shared a similar sentiment:

Well a lot of [shared value] is quite common sense. For example, GoGet is about wanting to lessen our impact on the ground, and you can’t do that unless these values are enshrined in local communities.

There is a lot of talk among large corporates of localisation and shared value etc. But it has to be in [the firm’s] DNA.

Bruce is keen to stress that GoGet’s fundamental business model and drivers, along with the day-to-day challenges it faces, are really no different to any other business.

It’s about marketing—to communicate simply what we do; communication; delivery of a seamless service that uses a lot of technology. For GoGet, there is incredible complexity to the system that operates in the background. In the foreground, we have to deliver on the promise of a seamless service. We take on the pressure of the systems; we take care of things so that members just have the driving experience.

It’s about process; systematising; training; feedback mechanisms. There is no special formula. We’re very focused on our market segment. We aim to continuously improve and refine production. We never stand still.

Technology has facilitated a growth in collaborative consumption, which Bruce notes is in itself not a new concept:

The internet is a major enabler of sharing, of cars for example—this market was ready to be opened up, and it’s an exciting time. … [Collaborative consumption] has always been there. Historically, we’re currently going through a whacky period, when Chinese-made things are so cheap, we’ve filled our workplaces and homes with stuff we rarely use.

He adds:

Collaborative consumption to me never went away, but often there was no alternative to owning things. Now you have a choice about owning things, [alternatives to] buying something … expensive that you don’t use much, or buying a cheap thing that you will throw out.

Examining GoGet’s path to success demonstrates a reconception of products and services, applying what Vargo and Lusch term as “service dominant logic” (more on S-D logic: 1, 2) to deliver the utility value of a product with a radical reduction in the drawbacks—social, economic and environmental—of the traditional ownership model.

GoGet represents a Product Service System, a concept pioneered by Oksana Mont among others and highlighted by Rachel Botsman in What’s mine is yours: The rise of collaborative consumption. Such systems place a greater emphasis on the longevity and servicability of the products being produced and provided to users, and rely on and encourage stronger relationships with suppliers. They also enable the recouping of higher production costs of goods such as electric vehicles through greater operational efficiency.

The close community ties highlighted by Bruce in our interview extend to working closely with local governance bodies (such as councils) to provide car share spots and other infrastructure. This in turn helps strengthen local clusters where such shared services are highly valued in attracting talent. All in all, GoGet provides a terrific example of the three pillars of shared value as outlined by Porter and Kramer working synergistically to create business and societal prosperity.

Case Study: Haul

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This post is part of a series outlining my learnings from interviews with a number of small and medium businesses exploring how they have benefited from a shared value approach. These case studies support a paper I wrote exploring strategic CSR (PDF 1.3MB).

The interview upon which this case study is based was undertaken with Haul’s founder, Scott Kilmartin, in April of last year—nearly 12 months ago (yes, it’s taken me that long!). A quick visit to the Haul website will show that Haul is no longer in operation, having closed their doors earlier this month. In his blog post announcing the closure, Scott cites a variety of personal and business reasons for winding down the business.

When I heard this news I was firstly saddened to see one of my favourite companies calling last drinks. But I also considered whether I should publish this case study, given that the business was no longer operating. Upon reflection I felt that there were many valuable lessons in what Scott shared with me in our interview that I felt the broader business community might benefit from. And I also think that Haul remains an exemplar of a shared value approach that is worthy of consideration and examination.

Perhaps, then, this post can be considered a homage to Haul and the inspiration Scott and the team provided me (and I’m sure many others) over the last 14 years. I’ve left the case study as it was originally written (in the present tense, as though Haul is a going concern).

Haul describes itself as an “independent design brand”. Based out of Fitzroy, an urban destination on the outskirts of Melbourne, Victoria, Haul produce bags, laptop cases and sleeves, photo albums, and other accessories from waste materials such as discarded advertising billboards, number plates, inner tubes and rubber printing mats. Haul diverts wastes that would otherwise end up in landfill and “up-cycles” them into high value products. In the words of company founder Scott Kilmartin:

we’re not melting it down and turning it into the padding that goes into speed bumps or children’s playgrounds. That’s recycling. We take a low value, no value item and turn it into something of significant value.

Haul was started in 1998, with Scott converting old number plates into wallets and photo albums, after seeing similar products during some time spent in the USA. Initially the products were sold at Salamanca markets in Tasmania (Scott’s father continued to sell the products there until early 2012) but the business quickly grew to include a combined retail outlet and production facility in Fitzroy.

Indicative of Haul’s success, five years ago Haul converted 36 tonnes of materials into products. In the financial year 2010–11 that number has grown to 85 tonnes—a 236% increase in that time—with that quantity projected to double in the financial year 2012–13. A majority of Haul’s business is from customers within Australia, with overseas internet sales, predominantly from New Zealand, the USA, UK and Japan, accounting for approximately 7.5% of sales.

Inherent in Haul’s business is a positive sustainability outcome. Scott estimating around 75% of the sourced material being utilised in Haul’s products, a further 10% being distributed to secondary markets such as theatre companies and local schools.

While an integral part of the brand, the sustainable attributes of Haul’s products have proven to be less important to the business’s success. Instead, the individual nature of each product has been a stronger selling point: due to Haul’s production process every piece is unique. Haul established itself as a retail brand, initially positioning itself in the “eco” or “green” category. However, a shift in strategy that saw the business framed as an “art-house” design brand, emphasising the uniqueness of the product, was rewarded, as Scott explains:

I got it wrong in the beginning, I thought we were a green business playing in the fashion space. We’re not. We’re a fashion business using green materials. And the difference in that is not just semantics, it’s we sell on a look and a feel and a story. …

And the biggest story that I can sell is “if you buy this Macbook case here, no-one else on the planet’s going to have it.” Walk down the street in Sydney, Stockholm, Shanghai, that’s the only one like that. And that’s a claim that very few products can make. Whether you’re a super premium brand like a Hermès or a Prada, there’s still 20,000 others exactly the same handbags that you made. … And that was the perception where the value in this wasn’t that it was a recycled material, it was the fact that it’s a one-off kind of art piece.

So we pulled out of a whole bunch of kind of green and eco stores and went to design and fashion stores. Instantly things changed overnight.

The strength of the retail brand resulted in Haul receiving inquiries from corporates wanting to create unique and memorable merchandise. Companies like Shell, RMIT, Seek and McGrath Real Estate are engaging Haul to transform the wastes from their own advertising activities into merchandise for their organisations. For example: shopping bags made from sales signage; iPad cases for sales reps; merchandise for students or conferences. Products made from a company’s own marketing materials result in personalised products that reflect the company’s brand (e.g. colours and logos). Other businesses are also looking to Haul to whitelabel Haul’s retail products.

In contrast to Haul’s early experience with the retail market, corporate customers have a greater emphasis on sustainability criteria:

With the corporate business it’s completely the reverse, the first questions you [get asked] is how it’s made, what are the recycle credentials, … what have we been audited on? … So they absolutely love the design and the uniqueness, but ultimately the first part is what can we say, what are the eco-credentials of this thing? And so … [while] we’re effectively making the same product, they’re purchased for quite different reasons.

The strength of Haul’s product, its uniqueness, also proved to be a significant challenge in meeting the demands of corporate clients. The larger quantities required to supporting such customers presented significant challenges in scaling up operations. Firstly, there are limited economies of scale in Haul’s production process—the cost to manufacture one item is virtually the same as when manufacturing one thousand. Scott sees cutting as Haul’s “core business”, noting that “what ends up on the front of each product has a big impact on whether it sells or not.” Each billboard or other raw material needs to be evaluated individually and cut to ensure that the most interesting elements are featured—ultimately a design decision that requires experience and skill.

Additionally, scuff marks, crinkles and fold marks, and other imperfections in the raw materials need to also be taken into consideration. This means that multiple panels, even of the same billboard design, can’t be cut to the same template, ruling out automation of processes that would more commonly enable reduction of costs at scale. This has resulted in Haul establishing close and trusting ties with overseas manufacturers to deliver at a competitive price point, with specialised training programs to support staff in these companies.

Strong supplier relationships closer to home have also been critical to Haul’s success, with the cluster of businesses supporting the textiles, clothing and footwear sector has been beneficial. Haul ensure favourable terms for local sewers and suppliers, in some cases providing specialised equipment such as heavy duty machines typically used by saddleries or sail makers, to outworkers. This commitment has resulted in suppliers going ‘above and beyond’ to find new methods of manufacture and supporting new product development.

The development of strong customer relationships, especially through the creative use of social media tools such as Twitter, have also been critical to Haul’s success to date. Scott credits early engagement with Twitter in particular as playing a significant role. Social media is a natural fit for Haul’s story-based approach to marketing:

…we’re a business that’s a story telling business and we’ve got a story behind us. It’s not just “this jacket comes in three sizes and three colours” … For us it’s “this used to be a billboard, you may have thought billboards were paper, they’re actually vinyl and this is what happens when they come down. This is how we made it, we individually cut it. It’s made by this guy here. You know, we’ve got this dog [@GusTheBoxer on Twitter] in the store.”

Scott acknowledges that “we wouldn’t exist if the community that we both work with and, for want of a better term sell to, didn’t help us along.” Haul have also successfully engaged customers in helping develop new products and customers have also provided important word-of-mouth referrals.

Haul’s story illustrates a number of benefits to taking a shared value approach. Firstly, reconceiving products and services using a sustainability lense created a product with unique selling potential that clearly differentiates Haul in the crowded accessories market. The story behind the products has enabled opportunities for authentic dialogue in social media channels. This engagement with customers has also helped to both differentiate the brand and generate significant referrals and word of mouth marketing. The sustainability benefits also opened up new market opportunities in the corporate sector, where sustainability criteria have a greater influence in purchasing decisions. Secondly, Haul’s connection and support of their supply chain partners, strengthening the local cluster of textiles producers, has reaped dividends in creating new products and high quality of service and products. These deeply embedded practices have set the stage for strong continued growth as Haul’s corporate offering expands.

Case Study: MTC Group

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This post is part of a series outlining my learnings from interviews with a number of small and medium businesses exploring how they have benefited from a shared value approach. These case studies support a paper I wrote exploring strategic CSR (PDF 1.3MB).

The MTC Group is an Australian-based specialty coffee importer and roaster that has grown out of the Mountain Top Coffee Estate, an Australian coffee plantation. MTC supplies coffee to local and overseas markets, sourced from Brazil, Indonesia, Ethiopia and Papua New Guinea in addition to that sourced from the local plantation.

The business has demonstrated strong returns during its three years of operation, with revenue more than doubling year-on-year over that period and volume increasing 300% according to Andrew Ford, MTC Group’s CEO and President. During this time the business has grown from two to six full-time staff and has established successful joint ventures with partners in Indonesia and Papua New Guinea. The group is continuing its expansion with the recent appointment of an Australia-based group manager and the opening of its first international office in Hong Kong to better service customers in the Asia Pacific region.

The Australian specialty coffee market—which Andrew estimates is roughly 10% of the total local coffee market—is highly competitive, with pressures impacting importers from both directions in the supply chain. Upstream pressure is caused by the significant rise in coffee prices in recent years. Additionally, downstream pressure has been applied by retailers and distributors, who are themselves facing tough trading conditions, for roasters and importers to maintain, if not reduce, prices. Lastly, importers are facing increased competition not only from competitor importers, but from their own customers. Andrew explains:

…the retailers that were the core business of these specialty coffee roasters, and they were the core business because they were good at what they did, they owned one or three or five stores at high- volume … those same guys now are saying well, “why am I buying coffee from the wholesale roaster? Why don’t I set up my own roaster and become my own roaster/retailer?”

MTC’s vision is to develop the Asia Pacific market, both as a sales target but also for sourcing. Regions play an important role in the marketing and positioning of produce within the international coffee market, with highly-regarded regions commanding premium prices. MTC is an early mover in the Asia Pacific region, seeking to gain a deeper understanding of this new market and stronger relationships within it, which Kanter1 highlights is a key to successful corporate social innovation. This has resulted in MTC supporting the development of key infrastructure to support traceability and market transparency in Indonesia and Papua New Guinea, where the coffee trade is less established. Andrew explains:

Kenya [is] highly regulated, highly structured, government intervention, everything runs from an auction so just by us being there and participating we’re providing the same sort of presence if you like, traceability and vision to our client base just by being there, participating at auction level. Indonesia [is different, it’s]: deregulated, no government intervention, dysfunctional…

Such active engagement with the community to develop the capacity of these local, emerging markets, is an investment in cluster development. The impact of such infrastructure on business competitiveness is noted in the context of both shared value2 and cluster development in general.3

A key differentiator of MTC’s business is its close direct relationships with producers throughout the coffee production stages, from red cherries through parchment, green bean and roasting processes. This is part of an overall strategy to differentiate MTC Group from competitor importers. Andrew explains: “as a business we want the market to perceive us not only in quality but in terms of innovation and in terms of … being an origin-based seller not [just] an importer.” MTC Group has developed a multi-tiered approach to its origin-based offerings, with brands being developed at a variety of regional levels. An example of this is the Tairora Project in Papua New Guinea, where MTC source coffee from a variety of villages and suppliers in the region, but have also developed sub-brands for beans sourced from Bonta (village) and Baroida (farm).

MTC values these relationships highly and invests significant resources in their development, providing support in the form of training (e.g. to evaluate bean quality) and market intelligence (e.g. sharing MTC’s experience of coffee market dynamics and buyer expectations). Andrew characterises this support as building “the capacity within the supply chain of our business, our exporters and even at the farmer level, to ensure we meet the market’s demand”, illustrating with an example:

What we’re doing is supporting Baroida farm to put in place quality initiatives … in terms of processing, drying, batching, garden collection, cupping and review matching the garden to the cuppings … giving guidance, … saying ‘the market’s asking for this’… ‘this involves steps A, B, C, D,’ … they’ve got the skills and the ability to do it on their own but we’re providing that feedback. … [we support them in] the evaluation process … in terms of building the database and the management of data or data collection so the comparison between activity ‘A’ and what your result is in the cup.

These skills not only support MTC’s business through increased quality of supply, but they also build the skills and feedback to growers about market trends and expectations, ultimately enabling them to command higher prices for their produce. This depth of relationship with suppliers helps provide MTC with competitive advantage that new entrants (including MTC’s customers) will find more difficult to copy. This re$ects Scott-Kemmis’s contention that a business model that is “deeply embedded in the specialised capabilities and collaborative links that a firm possesses”4 is a key component of innovation in the Australian market. It is also a key dimension of sustainable business practice, where “[r]elationships with suppliers and buyers are based on greater trust through which long- term contracts and relationships are emphasized, providing greater traceability of both products and their impacts.”5

This advantage may deepen into the future, if the market continues to shift towards what Andrew calls the “relationship business model” in the coffee market:

…the way I view our industry is that right now at trade/retail level to the consumer, the big buzz is relationships, in other words it’s all about the coffees… I guess the ‘90s was all about fresh and local and they do roast it locally, “we’re round the corner, we pack it fresh” … the 2000 decade was all about baristas, it was you know, “my barista’s the best barista, barista champion”, … and this decade is all about relationship properties in the market. And in this decade where it has never been more important than knowing where your coffee’s come from and having the integrity…

A key challenge with this shift within the broader market is that customers who see appeal in this model have not adjusted structurally to adequately the longer-term view that is required to support it. Andrew explains:

…we’ve built the relationship model with our Sumatran supplier, great relationships, you know, we refer to each other as our “brothers”, it’s that genuine, good honest, partner of mine, brother of mine. We’ve built the relationship; [our customer,] they buy two or three containers a year—we bring it in. They turned down an offer from us because they got a price discount effectively from another suppler of 5% … I rang the owner of [our customer] and said, “guys you can’t ask me for a relationship-based business model and then go to tender on every contract that we discuss.”

MTC’s experience demonstrates a reconceiving of products and services where relationships and the origin of produce are valued and act as a heuristic for quality. MTC has built a strong reputation for quality and transparency, developing a premium product in a commodity market. Transparency across the supply chain—an approach championed by leaders in other industries such as Patagonia (clothing & textiles) and Investa Property Group (see other case study)—is also emerging as an important aspect of the coffee commodity business. Certification schemes such as Fairtrade and Rainforest Alliance are one way the industry is adjusting to this shift. MTC’s approach signifies that redefining value in the value chain—developing direct, supportive, trusting, long-term relationships with suppliers—is another. Strengthening clusters through education and infrastructure also provide MTC with a competitive advantage in building the Asia-Pacific region’s profile in the international market, commanding corresponding premiums to the benefit of both MTC and its supplier communities.


Notes

  1. Kanter, RM 1999, ‘From spare change to real change: The social sector as beta site for business innovation’, Harvard Business Review, no. May 1999, pp. 122–32.
  2. Porter, ME & Kramer, MR 2011, ‘Creating Shared Value’, Harvard Business Review, no. January–February 2011, pp. 1–17. [http://hbr.org/2011/01/the-big-idea-creating-shared-value]
  3. Porter, ME 2000, ‘Location, Competition, and Economic Development: Local Clusters in a Global Economy’, Economic Development Quarterly, vol. 14, no. 15, pp. 15–34.
  4. Scott-Kemmis, D 2012, ‘Responding to change and pursuing growth: Exploring the potential of business model innovation in Australia’, Australian Business Foundation. [http://books.google.com.au/books/about/Responding_to_Change_and_Pursuing_Growth.html?id=kxuqMwEACAAJ]
  5. Hutter, L, Capozucca, P & Nayyar, S 2010, ‘A Roadmap for Sustainable Consumption’, Deloitte Review, vol. 2010, no. 7, pp. 46–59.

Case study: Investa Sustainability Institute

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As I mentioned in my last post, I had the chance to speak to a number of small and medium businesses last year about how they have benefited from a shared value approach. This is the first case study that supports the paper (PDF 1.3MB) I wrote exploring strategic CSR.

The Investa Property Group owns and manages commercial and industrial buildings across most Australian capital cities and the ACT1, managing assets worth AUDfi8.6 billion2. With 230 employees as at 20113, Investa is just over the nominal 199 employees that represents a medium-sized business according to ABS criteria. However, the Group’s experience remains worthy of examination as an example of shared value applied in an Australian context.

Sustainability credentials and building efficiency are key competitive factors in the Australian commercial property market, not only infiuencing operating costs, but also building valuations and rents achieved. Beck Dawson, Sustainability Manager at Investa, expands:

…in commercial office, there’s a very competitive market. That competition has bred a lot of forward momentum on sustainability compared to a lot of other industries, because we’ve had that intrinsic industry pressure.

With a desire to encourage greater industry transparency, Investa took the bold step in 2009 of releasing seven years’ worth of historical building performance data as part of their sustainability report. Reported data ranged from energy consumption and water use through to recycling and tenant complaints. The online report included an interactive tool to make this information more engaging and easier to work with. Beck highlights the tool was effective at engaging senior levels of management in understanding the importance of efficiency and to identify key areas for further investment:

[the tool allowed] for the first time that whole portfolio view of environmental performance of the organisation. [It] engaged more people … particularly at the higher level within the organisation, because it was visual. It has specifically encouraged investment in buildings that were not performing. … So the organisation’s gained through making that investment, seeing an improvement and with those come potential valuation uplifts, investment returns and the ability to attract different and more engaged tenants.

Many organisations might consider this kind of transparency radical and/or risky. However, the Investa team see this as a key competitive differentiator, as Beck explains:

At the moment you’ve got five different property companies saying “we’re sustainable.” How do you prove it? So now our partners are saying “well what does a green building really mean?” How do you classify that? How does anybody, any normal ordinary citizen or tenant look at this and go “well that’s a green building, and that’s not?” Well they don’t really have a way of doing that right now, because the detailed data’s not there.

This high level of transparency serves to build Investa’s credentials, providing evidence to support the company’s claims and strengthening their competitive positioning within the market.

Also in 2009, Investa launched the Investa Sustainability Institute (ISI) as a vehicle for action research, leveraging Investa’s building stock and the data it generates as a “real world ‘testing ground’ where promising ideas, investments in technology and non-technological interventions can be applied and analysed by researchers working with the Institute.”4 Part of the impetus for establishing a separate research arm, particularly one with a non-profit structure, was to reduce barriers to participation by external stakeholders, according to Beck:

…we wanted to participate in research and make good partnerships with other external bodies including academics, other property companies, … clients, tenants in the industry in which we work. … [We wanted to] develop a forum that would allow all those parts to come together to do really good action research. … We really wanted to be an engaged partner in research projects. And that’s much easier to do when you’re a research body.

Such an approach to data sharing and industry-wide collaboration is highlighted by Porter and Kramer:

Major competitors may also need to work together on precompetitive framework conditions, … Successful collaboration will be data driven, clearly linked to defined outcomes, well connected to the goals of all stakeholders, and tracked with clear metrics.
Investa’s initiatives also recognised that efforts at bringing about new innovations would benefit from multi-disciplinary dialogue.

This open innovation approach, incorporating network relationships into their business model, features in the innovation strategy of an increasing number of firms, as outlined by Scott-Kemmis.

Dawson points out the ultimate goal is “improving the environmental performance of the buildings [leading to] improved financial performance.” But while these insights are valuable internally, the Institute has also made efforts to engage a wider group of interested people. This is in part to build a wider awareness and skill set within the local market, to help skill up local practitioners to better support Investa’s goals. But it also aims to educate Investa’s potential customers, “to raise the level of the debate from ‘oh, it’s got green stuff stuck on the outside like solar panels,’ which is very visible … aren’t necessarily very material in terms of carbon emissions from commercial office buildings,” as Beck explains.

External engagement initiatives include the Green Buildings Alive (GBA) program, which seeks to provide “an in-depth look at how meaningful data can trigger actions in buildings that improve performance and services to occupants at the same time.” GBA seeks to provoke multi-disciplinary dialogue between interested parties within the industry.

Pulse building insight

Investa are continuing their drive towards greater data transparency, releasing the Pulse tool in early 2012. Pulse enables near real-time data from a sub-set of Investa’s building portfolio, providing more timely feedback to Investa’s building managers. In keeping with ISI’s action research approach, Pulse builds on the learnings from previous initiatives, aiming to better support building managers in making decisions.

Where earlier efforts to publicise data were in part an attempt to spur a competitive spirit between managers, Craig Roussac, Investa’s General Manager, Sustainability, Safety and Environment, explains that this emphasis has now shifted:

[Previously] we were talking about using an audience or external communications as a means to motivate. It probably doesn’t really motivate [building managers] very much. … rather than someone telling them there’s a problem, fix it, there’s actually this [tool] to give them feedback. And they would have a better idea than anyone else as to what might have contributed to that out performance or under-performance yesterday. … and further, because they’re in charge of whether an issue is worth pursuing or not, they can prioritise their time a lot better that someone saying “what was that six kilowatt hours they’ve used at 3:00am three weeks ago, I want to find out?”

The property market is being transformed by demand for reconceived products and services, with sustainability criteria and so-called “green buildings” emerging as a significant competitive driver in the local market. Investa’s experience demonstrates the need for engagement across the value chain in delivering community benefits (more sustainable building stock), which also illustrates the increasing expectations on suppliers to larger organisations in engaging in the delivery of shared value outcomes. Investa’s transparency agenda provides both internal benefits, but aims to strengthen local clusters by increasing the capabilities of practitioners working towards greater building efficiency. The boundary of this cluster extends beyond the property market, encompassing academics, information technology infrastructure providers, property managers, and more.

Shared value and SMEs

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As part of my Masters studies, I had the pleasure of interviewing a few businesses that were doing really interesting things in the shared value space. While some of these businesses didn’t formally recognise their activities as being related to shared value (some hadn’t really heard the term), I put together a short paper with corresponding case studies that linked what they were doing with this broader concept.

I thought it might be of value to present these in a short series of posts that I’ll be putting up over the next few weeks. I hope that they contribute constructively to discussion around shared value, and particularly how this concept relates to smaller businesses.

As a starting point, I think it’s worthwhile to ground shared value in a broader context of what some have termed “strategic CSR” and to look at some of the challenges that small to medium businesses face in applying these principles in daily practice.

I wrote a (relatively) short paper on this topic (unimaginatively titled Strategic CSR and small to medium businesses in Australia (PDF 1.3MB), which:

…explores the concept of shared value as it relates to small to medium businesses (SMB) in an Australian context. It begins by lightly tracing the evolution of the concept of corporate social responsibility (CSR) from “defensive” to “strategic” positions. It then brie!y outline the core principles of shared value and related work around economic clusters. It then considers the role that SMBs can play in achieving sustainable outcomes and some of the potential impacts of shared value on SMBs. The paper concludes with three brief examples of Australian small to medium businesses who illustrate aspects of strategic CSR as outlined in this paper.

(Note that I’ve left the case studies out of that paper, as I’ll be posting them here individually in the next few weeks.)

One short note: my lecturer took (constructive) issue with my closing statement that “We are in the midst of a significant shift in thinking about the role of CSR within the business community.” He noted that perhaps this was more prevalent in the circles that I frequent, which is probably true. I very much based this on my experience and reading and there does seem to be a lot of discussion about these concepts, from Porter & Kramer’s HBR articles to commentary on the web to my own discussions amongst peers and with interview participants etc. I’d be interested in your thoughts: is this shift more broadly applicable, or is it a niche thing?

The circular economy

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Explaining concepts like Product Service Systems and “service dominant logic” can be tricky, so it’s always great to come across good resources like the video below from the Ellen Macarthur Foundation (via Good.is):

The video uses the term “circular economy” to explain one of the aspects of Collaborative Consumption (product service systems). It strikes me as a great introduction to the key concepts and benefits.

Shared value and small business — does it resonate?

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Can you help us find small business owners to participate in some research we’re undertaking? More details.

Over the past few months I’ve been talking to Allison Heller (from UrbanAffect) about the role that shared value can play in supporting small businesses in achieving their goals. (I’ve drafted a paper for my masters on the topic as well, which I’ll hopefully be in a position to share soon.)

Sustainability and SMBs

According to the Australian Bureau of Statistics there were over 2.1 million actively trading businesses in Australia as at June 2011, with 96% of those being classed as small businesses — i.e. businesses employing less than 20 employees. In 2009–10, these small businesses made a significant contribution to the Australian economy, representing close to half of all employment in Australia, or around 4.8 million people. If medium enterprises — businesses employing up to 199 people — are included in the equation, small to medium businesses account for 70% of employment. Small and medium businesses generate just short of 60% of industry value-added to the economy.

As Linda Condon points out, “it is apparent … that SMEs contribute significantly to the economic success of a country, but aggregated they undoubtedly have a significant impact on ecological systems as well as on the social fabric of a society.”

The challenge, though, is expressed in the key words “in aggregate.” It strikes me that the common arguments for business sustainability don’t resonate for small businesses, especially those in service industries (non-manufacturing/agriculture etc.). For example, for many small businesses efficiency measures may not create sufficient savings to justify the expenditure, or more importantly the time and focus, required to measure, define and implement.

Electricity bills, while rising, are still a (relatively) small part of expenditure for many SMBs, meaning that there is insufficient motivation for even quantifying (measuring/reporting) and explore efficiency measures, let alone doing anything beyond very easy things such as changing light globes and turning off standby power — the oft-quoted “low hanging fruit.”

In other cases, small business owners and managers don’t have control over their office environment and key plant and equipment (e.g. landlords control key fixtures and fittings etc.), making changes relating to efficiency and sustainability difficult, even when quantifiable savings can be achieved.

Turning attention to the broader concept of shared value, aligning business objectives with societal and environmental goals, there are further barriers. My experience (both in running a small business, but also talking to clients and colleagues running their own businesses) is that it is often hard to step outside of the day-to-day challenges to focus on strategy, let alone actually implement.

While more common in larger businesses, running a “strategy day”, or investing in a workshop for management/staff (and the subsequent impacts on operations and productivity) are not something that business owners are able to take on lightly (if at all). These kinds of activities are often pushed to the back of the queue as operational considerations (i.e. servicing customers) take the fore. The capital required to shift directions and invest in new initiatives can also be a limiting factor, negating some of a small business’s advantage over larger competitors being their nimbleness.

Our research and personal experience has highlighted that SMB owners are:

  • Looking for “one-stop-shop” guides — not having to hunt around and piecing together bits of knowledge and advice to apply in their business context;
  • Seeking “nuts and bolts” advice — checklists, tips, “how to’s” — rather than support in developing the “big picture”;
  • Challenged to rise above “day-to-day” activities to think strategically about their business and implement new practices;
  • Open to/interested in sustainability practice, but find it hard to justify the “expense” and “extra overhead” of pursuing sustainability initiatives;
  • Of the opinion that they’re largely efficient/sustainable already (that there’s not much they can do);
  • Business leaders in sustainability and shared value have achieved this position through strong leadership from owners and/or senior management. That is to say, owners must be committed and engaged with sustainability/shared value to gain the flow-on strategic benefits.

Research project

With this in mind, over the coming months Allison and I are looking to do some research to consider what sorts of tools and approaches might support owners in embedding shared value concepts into their businesses. So we’re on the lookout for participants to work with us in understanding practices better.

Specifically, we’re recruiting small business owners who:

  • Has between 5–20 employees
  • Are in the greater Sydney metropolitan area
  • Run a services business (that is, businesses that aren’t manufacturing, importing goods, or in agriculture)
  • Could spare 2–3 hours across a week (during September) to talk to us and (lightly) document what happens in their business using mobile video tools
  • Isn’t actively pursuing a social innovation/sustainability agenda with their core business — i.e. an interest in sustainability is ok, but we’re not looking for a Haul or Digital Eskimo ;)

We have budget for a small financial incentive in recognition of the time commitment. And, of course, we’ll be happy to share the (non-identified) results of the research with all participants.

If you or anyone you know might be interested, please get them to contact us — we would really appreciate it.